Is the Medicare program worth what it costs? Not what it costs seniors, of course. Though many don’t understand the math, their premiums are buying a health insurance bargain. The average Medicare beneficiary pays for only about a third of the lifetime benefits received, according to an Urban Institute analysis.

But as a matter of public policy, does Medicare accomplish what it’s supposed to at a reasonable cost? Or should budget cutters target the program as a fat source of savings at a time of fiscal uncertainty and federal frugality?

Since its inception, Medicare has grown to gobble up $1 of every $7 of the federal budget. The political pressure has been ratcheted up recently because the deficit is getting worse, not only because the Medicare population is growing with the graying of America (10,000 baby boomers turn 65 each day), but also because the level of illness among seniors is on the rise. A new report from the American Hospital Association found that rates of obesity and chronic disease rates among seniors are climbing, bringing big cost increases with them.

Already, two-thirds of Medicare beneficiaries have two or more chronic conditions. As the Medicare ranks increase, there will be a sharp jump in the intensity of medical services needed and the money spent to provide them.

That’s the cost side. But what about the benefits side? The answer to that question is not as obvious as one might think.

In signing Medicare into law in 1965, President Lyndon Johnson movingly laid out its goals:

No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years. No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and to their uncles, and their aunts.

Researchers have repeatedly questioned how much “miracle” Medicare money has bought. Looking at the first ten years of the program, economists Amy Finkelstein and Robin McKnight concluded that the advent of Medicare resulted in “a substantial increase in the elderly’s use of hospital care,” but “played essentially no role in the dramatic decline in mortality rates for the elderly.” Others have reached a similar conclusion.

Although the researchers admit their methodology could have missed small gains in life expectancy, they also offer a possible explanation for why Medicare did not prompt a large-scale death-rate decline. Hospitals of that era, they say, were treating short-term acute illnesses, not chronic ones. While the researchers don’t go into specifics, a senior showing up with sharp chest pains was likely to get treated even with no insurance card. And, of course, the high levels of smoking and alcohol use of that era also assured that plenty of under-65s had heart attacks.

What Medicare did change dramatically and almost instantaneously were the economics of care. Once Medicare assured hospitals and doctors they’d get paid, the use of medical services by seniors shot up. When it did, Medicare played a key role in keeping medical costs from crushing them or their younger relatives, as Johnson predicted. Finkelstein and McKnight found a 40 percent decline in out-of-pocket spending on care by seniors in 1970 relative to pre-Medicare levels. The “social welfare” effect of that change was enough to pay for up to three-fifths of the program’s costs, they added.

Still, the first ten years of Medicare are hardly a reliable guide to the decades that have followed. Substantial improvements in medical technologies that save lives and improve the quality of life can be credited at least in part to the availability of Medicare reimbursement for their use. One cleverly designed study set out to examine just how important Medicare was for patients in acute need of care.

The 2009 study, conducted by David Card, Carlos Dobbin, and Nicole Maestas, and published in the Quarterly Journal of Economics, looked at the medical records of patients who showed up in the emergency room at California hospitals with health issues needing immediate attention. That set of patients was deliberately chosen so as to weed out those who’d just been waiting till they turned 65 to go for care. Card and colleagues then divided the group between those just under age 65 and those 65 and older.

One week after admission, Medicare beneficiaries were a stunning 20 percent less likely to have died than those just under age 65 with similar illnesses. Moreover, this large difference in death rates persisted for at least nine months. The authors speculated that Medicare beneficiaries might have received more intensive medical treatment. Put differently, Medicare might have meant having access to precisely the kind of “healing miracle(s) of modern medicine” Johnson spoke of in 1965.

Other recent research has found that Medicare coverage leads to gains in the actual health status of seniors, particularly men, and that increases in Medicare spending both saved lives and reduced avoidable and costly hospital stays. A separate study of Medicare beneficiaries, published earlier this year by Jack Hadley and James D. Reschovsky, concluded a 10 percent increase in medical care use was associated with an 8.4 percent decrease in the mortality rate and a 3.8 percent decrease in the rate of avoidable hospitalizations.

So does that mean that cutting a dollar from the Medicare budget kills a senior? Not at all. That Medicare saves lives, improves health and saves money for seniors does not mean that the same benefits might not accrue for less money. Certainly, we know that a big chunk of health care spending goes to unnecessary or unsafe care. The problem is that assuming that big, across-the-board budget cuts will automatically reduce wasteful care or even that high-spending providers must automatically be the wasteful ones is a dangerous policy path.

What works better is paying attention to the care given individual beneficiaries with particular conditions, while also changing the financial incentives that encourage inefficiency everywhere. The “bundled payment” initiatives in the Affordable Care Act, including the patient-centered medical home and accountable care organizations, are designed to reward providers for high-value medical practice, not high volume. Examining the outcomes of care as closely as their cost is critical to making these new forms of medical practice pay off for those who excel at them.

Re-engineering American medicine is not as simple as chopping every doctor or hospital paycheck. In the long run, it is more systemic change that is better for beneficiaries and for the overall health care system that everyone, Medicare beneficiary or not, relies upon.